LONDON/FRANKFURT, Oct 2 Britain has lost its
long-standing position as Europe's leading gas consumer to
Germany, and the shift could threaten the UK's ranking as the
continent's biggest gas trading hub.

Britain's natural gas demand has plunged 22 percent over two
years due to a weak economy and because cheap coal imports have
made coal more profitable for generating electricity than gas.

Although German gas demand has also been affected by cheap
coal, its economy has fared better than Britain's, supporting
industrial use.

Most data suggests the switch happened between 2012 and
2013, and it is almost certain that Germany will have overtaken
Britain as Europe's biggest gas user by the end of this year.

German gas consumption was above 50 billion cubic metres
(bcm) in the first half of this year, while Britain's demand
lingered around 46 bcm, according to government data.

Whether Germany will remain Europe's biggest gas user is
unclear. Germany's developing position as a gas import hub
thanks to Baltic Sea pipelines and signs of economic recovery in
Britain make it difficult to predict.

"In the medium term, the two countries will be within 5
percent of each other. We don't consider the UK going much
higher than Germany again," said Laszlo Varro, the International
Energy Agency's head of gas, coal and power markets.

Germany's jump in the table is partly due to a rise in
Russian gas sales to Europe, where Germany is its single largest
buyer, after offering lower prices more closely linked to spot
prices instead of expensive oil.

Russian export monopoly Gazprom shipped 14 percent
more gas to Europe between January and August compared with a
year earlier.

UK GAS TRADING STILL TOP?

Germany's new position also benefits its traded gas markets
in continental Europe.

"German markets are ... still growing; Gaspool in particular
has been benefitting from being the main destination for Russian
gas supplies via Nord Stream," UK analyst Nigel Harris said.

Yet German gas trading remains much lower than in Britain
and the Netherlands, which have Europe's two biggest gas trading
hubs.

Data from consultancy Prospex showed that the German gas
churn rate of 2.8 percent - a liquidity measure that indicates
the amount of gas traded over national usage - is dwarfed by
those of Britain and the Netherlands, at 25 and 20 percent
respectively.

The main benefactor of the switch between Britain and
Germany is the Netherlands, which has a large domestic gas
market, is well connected to Europe's two biggest users, and has
access to the global liquefied natural gas market through a
terminal at Rotterdam and one nearby in Zeebrugge, Belgium.

"The (Dutch) TTF market continues to consolidate its
position as the leading continental market, particularly for
forward trading," Prospex said.

Trading at Britain's National Balancing Point, by contrast,
is much more focused on the short-term spot market.

German traders who seek futures trading for hedging
purposes, to shield themselves against future price swings,
typically turn to the neighbouring Dutch market.

Germany's energy exchange EEX, which started gas contracts
in 2007, traded 75 terawatt-hours of spot and futures gas mainly
for Germany in 2012, equivalent to just 8 percent of national
consumption.

By contrast, 20 out of 100 gas shippers listed as trading on
the Dutch market are based in Germany.

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